French millionaires living in Switzerland who benefit from tailor-made tax deals are being targeted in a new fiscal-raising measure by the French government. The Swiss finance ministry says it was not officially informed about the change.
Some 5,500 rich foreigners residing in Switzerland currently benefit from a lump-sum tax system that ignores income and wealth but typically sets taxes based on cost of living at around five times the rental valuation of the individual’s property. Around 2,000 of these are thought to be French.
Over the past 40 years the French authorities tolerated the scheme and rich expats who still had certain professional activities in France were taxed in Switzerland but paid a 15-per-cent withholding tax on any dividends earned.
But under a new regulation introduced by the French authorities over Christmas and which came into force on January 1, they will no longer be covered by the French-Swiss double-taxation treaty and will now have to pay a 30-per-cent withholding tax on dividends.
Roland Meier, spokesman for the Swiss finance ministry, confirmed the information, which appeared in the Le Temps newspaper on Saturday, adding that Switzerland had not been officially informed.
“We got the information from a third source,” he commented.
Vaud Finance Minister Pascal Broulis expressed his shock at the French decision, which he said “created insecurity” for taxpayers.
“A convention is a partnership. If this is unilateral, it’s a declaration of war – one more from the French,” Broulis told French national radio on Saturday.
“There is a risk of increased tensions between two friendly nations, which is not healthy,” he declared. “France is an important partner. Many cross-border workers are employed in Switzerland and every year SFr5-7 billion ($5.4-7.5 billion) worth of salaries leave Switzerland for France.”
Despite the French decision, Broulis said the Vaud authorities would continue to issue French lump-sum tax beneficiaries with certificates allowing them to benefit from the double-taxation treaty.
Lump sum taxes
Beneficiaries must live at least six months and one day in Switzerland and have their principal residence in the country.
They must be making Switzerland their tax home for the first time, or have lived outside the country for at least ten years.
They must not be employed within Switzerland.
Most of the 5,445 beneficiaries (official data from 2010) live on Lake Geneva or in mountain resorts, mainly in cantons Vaud (1,400), Valais (1,100), Geneva (690), Ticino, Graubünden and Bern.
The Organisation for Economic Co-operation and Development (OECD) last January called on Switzerland to abolish the lump sum tax system.
Broulis pointed out that Switzerland was not alone and that the government of President François Hollande had tax problems with other European nations like Belgium and Britain, as well as with some of its own wealthy citizens like actor Gérard Depardieu and billionaire Bernard Arnault, head of the luxury goods company Louis Vuitton Moet Hennessy.
During his presidential campaign last year Hollande promised to tax the rich. A raft of tax-raising measures were introduced by the Hollande government on Jan 1 in an effort to reduce France’s public spending deficit.
The move comes not long after a visit to Paris by outgoing Swiss President Eveline Widmer-Schlumpf on December 7, where she met her French counterpart to discuss thorny tax and financial issues.
Hollande admitted that one of the reasons for their meeting was to strengthen bilateral relations which had been damaged by arguments over banking secrecy going back to his predecessor, Nicolas Sarkozy.
But he ruled out any tax amnesty as part of any agreement on banking secrecy with Switzerland. Switzerland had wanted – via a so-called Rubik accord – to regulate the previously non-declared, untaxed funds deposited by foreign nationals in Switzerland while preserving client anonymity.
The French president also denied reports, confirmed by the Federal Prosecutor’s Office, that French tax agents were pretending to take holidays in Switzerland in order to check up on French tax payers.
Another tax issue making waves between the two neighbours is the plan to revise a 1953 Franco-Swiss inheritance tax accord. The new treaty is intended to help France recover inheritance tax from its citizens living in Switzerland and force Swiss who own property in France to be taxed there.
The new proposed treaty, drawn up by Paris and Bern but not yet ratified, will not only affect the 2,000 French millionaires currently living in Switzerland. Many of Switzerland’s largest expat community - 170,000 Swiss live in France, many of whom have dual citizenship – may also be hit.